Transaction costs and the social cost of online privacy

Paul Sholtz

Abstract


Economically, privacy can be understood as a problem of social cost, where the actions of one agent (e.g., a mailing list broker) impart a negative externality on another agent (e.g., an end consumer). Problems in social cost can be understood by modeling the liabilities, transaction costs and property rights assigned to various economic agents within the system, and can be resolved by reallocating property rights and liability to different agents as needed to achieve economic equilibrium. This article examines how advances in high speed networking and data storage have radically reduced the costs to businesses of collecting, storing, manipulating and exchanging large amounts of personally identifying information on consumers, and the policy implications that these cost reductions have on property rights over personal information. A complementary economic and legal system that recognizes individual property rights over personal information is suggested as a way in which to greatly accelerate the adoption of electronic commerce and to extract inefficiencies from the already existing marketplace for personal information.

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DOI: http://dx.doi.org/10.5210/fm.v6i5.859



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